Two interesting reports by The Malay Mail on billion-dollar NPLs! PLUS 2FOLLOWUPS...

Borrower lodges report against bank suspected of selling NPL

A POLICE report has been lodged against a local bank and debt collection agency, Mystique Bay Sdn Bhd, over alleged breaches of the Banking and Financial Institutions Act 1989 (BAFIA).

The report, lodged by Ishak Yaacob, 56, came hot on the heels of The Malay Mail’s front page expose on Monday titled RM60 billion illegal outflow, which said local banks were found to breach BAFIA since 2005 by selling non-performing loans (NPL) to foreign-controlled debt collection agencies.

On Tuesday, Ishak reported that he and his wife, Sulastri Mohd Hoessein Enas, took a loan from a local bank and used one of her properties as collateral.

When they defaulted on their payments, the bank proceeded to initiate legal action, and put up a public auction of the property.

During the auction, the bank proceeded to sell the couple’s NPL to Mystique Bay via a sale and purchase agreement dated Oct 5, 2007.

On Oct 12, 2007, Mystique Bay and the local bank procured a vesting order in favour of the agency, and corresponding sales and transfer on Nov 20, 2007.

Ishak claimed that the bank and Mystique Bay misrepresented to the court that they had complied with the relevant provisions of BAFIA.

He said Mystique Bay had issued a letter to the local bank instructing that all monies relating to NPL must be paid in US dollars to CVI Global Value Fund Luxembourg Master Sarl via its beneficiary bank, JP Morgan Chase Bank in New York.

“Mystique Bay is currently pursuing to auction off my wife’s property and we are adamantly defending the matter as I believe there is evidence of collusion between the bank, Mystique Bay and government authorities, whereby funds are being repatriated out of the country illegally,” he said in his report.

“I am deeply troubled by the fact that the majority shareholder at the material time of vesting, of Mystique Bay, is a corporate body based in Luxembourg, known as a tax haven.”

Police confirmed the report and said they have transferred the case to the Kuala Lumpur Commercial Crimes Department.

Attempts to contact Mystique Bay Sdn Bhd failed.

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AND the earlier MM report:~~

RM60b NPLs in foreign hands

Non-performing loans sold to overseas debt collecting agencies by banks in clear breach of BAFIA

SOME of the nations premier banks had illegally sold their non-performing loans (NPLs) to debt collecting agencies.

If that is not enough, these NPLs were sold to agencies whose majority shareholders are foreigners.

This means proceeds from the sale of auctioned property from NPLs as well as whatever that is collected from the defaulters are going overseas.

According to sources in the financial sector, this practice, which has been going on since 2005, has seen close to RM60 billion leaving the country.

"What you have is government agencies colluding with some of these banks to allow NPLs to be sold to these debt collection agencies, which are clearly in breach of the Banking and Finance Act (Bafia) 1989," said a source.

Under Bafia, for NPLs to be "sold", three mandatory requirements must be fulfilled:

* Obtaining a valid sanction from the finance ministry (MOF) prior to the sale and purchase of these NPLs.

However, the application for a vesting order should be by both the banks and the transferee.

In these cases, however, the vesting order is given to a debt collection agency;

* NPLs can only be sold and all rights of the banks can only be vested in a Bank Negara-regulated financial institution.

These third parties are clearly not financial institutions; and

* The banks can only sell these NPLs to financial institutions, which must have least 51 per cent local equity.

In short, the majority share must be held by Malaysians.

Documents made available to The Malay Mail, however, indicated the NPLs were sold to foreign-controlled debt collecting agencies, via sale and purchase agreements, put together by reputable local legal firms.

Another twist to the tale is that a search on some of these companies reveals they are all foreign-majority owned where among the shareholders are the respective banks themselves as well as their overseas-based competitors.

A foreigner, who is the son in-law of a prominent local banker, owns the majority of shares in one such debt collection agency, which had procured a vesting order from a premier locally based foreign bank.

The document accompanying this report (above) illustrates the United States based JP Morgan Chase is the “beneficiary bank” of these NPLs sold by this premier bank, via a Luxembourg account.

“There are many issues here to be considered,” said one source, who is suing his bank for foreclosing and auctioning off his property. Chief among them is the legality of the seizure and auctioning off the property of Malaysians.”

The source’s lawyer said another issue was corporate tax evasion.

“So much money is being sent overseas … money of hard-working Malaysians who have fallen on hard times.

“Instead of helping them out, these banks, aided by Bank Negara’s indifference, are squeezing Malaysians, and the beneficiaries are Western companies and individuals.”

In 2007, the MOF proceeded with a proposal to amend Section 49(9)(a) of the Bafia to allow debt collection agencies to purchase NPLs.

However, the proposed amendment was never laid before Parliament, which means the conducts of banks that sell these NPLs are illegal.

Documents viewed by The Malay Mail indicate a “blanket approval” was given in 2007, as indicated via an MOF letter on Sept 7, 2009.

“However, the so-called ‘blanket approval’ has yet to be produced even after repeated requests,” said one lawyer representing another client, who had his house repossessed.

“Even then, Bafia nor the Delegation of Powers Act 1956 allow for such a ‘Blanket Approval’ to be given, as the Bafia clearly spells out the procedure to procure such approval, and that such sanction and approval is given on a case-to-case basis.”

Bank Negara and the MOF have yet to respond to queries from The Malay Mail.

In a press statement yesterday, the central bank said banking institutions could dispose of their NPLs as part of their risk management practices as long as the sales were made in accordance with the law.

The statement said: "We refer to a recent news report on the sale of nonperforming loans to foreign parties by banking institutions that is inaccurate and misleading.

Banking institutions can dispose of their NPLs as part of the bank's risk management practice. Disposal of NPLs provides the flexibility for banks to manage their loan portfolios effectively and efficiently to maximise recovery to protect depositors' interest.

Any recovery action must be in accordance with the law.

Banking institutions are permitted to sell their NPLs to non-banking institutions provided that the sale of NPLs is made in accordance with the requirements of the Guidelines on the Disposal/Purchase of Non-Performing Loans by Banking Institutions, which are issued under the Banking and Financial Institutions Act 1989 (Bafia).

The guidelines spell out certain requirements that must be met by any banking institution proposing to sell NPLs:

Banks can only sell to locally incorporated companies which the purchaser is majority owned by domestic shareholders as the purchaser is subject to a foreign equity cap of 49%

Banks are also required to undertake necessary measures to inform the borrower of the sale of the NPLs

Sale of NPLs that is made in accordance with requirements of the Guidelines do not contravene the Bafia

Sale of NPL does not affect any debt restructuring agreements.

The amount of NPLs sold in the news report is grossly overstated. Since 2005, NPLs sold by banks are less than RM3 billion."

Pua (right) cited a Malay Maildaily report that published evidence of NLPs being bought from local financial institutions with less than 49 percent domestic equity, which is prohibited under Bafia.

In one case, the daily reported, a foreigner, the son-in-law of an unnamed renowned local banker, was involved in the scandal, where the NPLs were sold to agencies with the majority shareholders being foreigners.

The covert practice, ongoing since 2005, said the report has resulted in over RM60 billion in foreign outflow.

"This raises the issue of serious conflict of interest, criminal breach of trust, and even fraud, and must be investigated by the relevant authorities," he said.

The MP also criticised Bank Negara's insipid denial of the report, saying that it was "inaccurate and misleading" despite the show of proof on the breach.